Trustmark Insurance Co v. John Hancock Life Insurance Company (U.S.A

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 09 C 3959-James B. Zagel, Judge.

The opinion of the court was delivered by: Easterbrook, Chief Judge.

ARGUED JANUARY 6, 2011

Before EASTERBROOK, Chief Judge, and CUDAHY and ROVNER, Circuit Judges.

Two insurance companies agreed in 1997 that Trustmark would reinsure some risks underwritten by John Hancock. The details of the parties' multiple contracts are unimportant for our purposes. It is enough to say that the insurers disagree about the meaning of "London Market Retrocessional Excess of Loss business", which Trustmark need not reinsure. The parties submitted their dispute to arbitration under the contracts' broad arbitration clauses. In March 2004 a tripartite panel (one arbitrator selected by each side, and these two selecting a third, called the umpire) made its award, supporting Hancock's view of Trustmark's obligations. The award was confirmed by a district court. 2004 U.S. Dist. LEXIS 11370 (N.D. Ill. June 17, 2004).

Trustmark was dissatisfied and refused to pay the bills that Hancock sent on the view that the confirmed award governed all of the parties' dealings. This led Hancock to commence a new arbitration in October 2004. Trustmark responded by arguing (among other things) that Hancock had secured the March 2004 award by failing to disclose four documents during arbitral discovery, an omission that Trustmark labeled "fraud." Hancock named as its arbitrator Mark S. Gurevitz, who had participated in the first arbitration as well. Trustmark picked a person who had not participated in the earlier proceeding. The two party-chosen arbitrators selected a neutral umpire. One of the first issues the three-person panel had to tackle was what weight to give the 2004 decision. Hancock contended that it was largely dispositive; Trustmark contended that it should be ignored and the proceedings restarted from scratch. Consideration of this point was complicated by a confidentiality agreement that the parties had reached during the first proceeding. This agreement-which did not include its own arbitration clause-prevented Trustmark and Hancock from disclosing the evidence, proceedings, and award. The parties debated whether this agreement covered all dis-closures, even to lawyers and successor arbitrators, or only disclosures to the outside world (such as the firms' business rivals and the press). Gurevitz and the umpire concluded that the arbitrators themselves (and the par-ties' lawyers) are entitled to know and consider the evidence presented, and the results reached, in the first arbitration.

Before the panel commenced its hearing on the merits, Trustmark launched this suit under the diversity jurisdiction. The suit, filed in 2009, initially asked the court to vacate the decision that had confirmed the 2004 award. That request is so obviously untimely-the time to appeal the district judge's decision had expired five years earlier, and Fed. R. Civ. P. 60(b) does not allow that decision to be reopened-that Trustmark soon reformulated its principal contention, asking the court to enjoin further arbitration as long as Gurevitz remains a member of the new panel. The contracts require all three arbitrators to be "disinterested". Trustmark contended that Gurevitz is not, because he knows what happened in the first arbitration. It also insisted that the new arbitral panel is not entitled to form or act on any view about the meaning of the confidentiality agreement, because that agreement does not include an arbitration clause. Only a judge, Trustmark insisted, can determine what the confidentiality agreement requires.

The district court agreed with Trustmark and issued an injunction. 680 F. Supp. 2d 944 (N.D. Ill. 2010). The judge wrote that Gurevitz is not "disinterested" because he knows what happened during the first arbitration and could be called as a fact witness about those proceedings. The judge also ruled that the second panel is not entitled to consider the decision made by the first panel. The injunction stopped the arbitration in its tracks. Hancock has appealed.

Equitable relief depends on irreparable injury, and the first question we must address is whether Trustmark showed any. Here is the district court's entire discussion of that subject:

Trustmark cannot be forced to arbitrate issues that it did not agree to arbitrate. See AT&T Technologies v. Communications Workers of America, 475 U.S. 643, 648 (1986). "Forcing a party to arbitrate a matter that the party never agreed to arbitrate, regardless of the final result through arbitration or judicial review, unalterably deprives the party of its right to select the forum in which it wishes to resolve disputes[,]" causing irreparable harm. Chicago School Reform Bd. of Trustees v. Diversified Pharmaceutical Services, Inc., 40 F. Supp. 2d 987, 996 (N.D. Ill. 1999). This is a harm faced uniquely by Trustmark if it is denied relief and such harm tips the scale in favor of granting in-junction. This irreparable harm, coupled with Trustmark's success on the merits, militates in favor of granting an injunction in this case.

680 F. Supp. 2d at 949. There are two principal problems with this understanding.

First, Trustmark did agree to arbitrate the question whether the contracts provide reinsurance for certain risks. Yet the district court blocked rather than enforced that contractual undertaking.

Second, the proposition that going forward with an arbitration "unalterably deprives the party of its right to select the forum"-a proposition for which the court did not cite any statute or appellate decision-is false. Once the arbitration ends, a party that believes the proceeding flawed because the arbitrators exceeded their remit has a simple remedy: a proceeding under the Federal Arbitration Act to deny enforcement to the award. See 9 U.S.C. §10(a)(4) (award may be set aside "where the arbitrators exceeded their powers"). If the award should be set aside, litigation in the proper forum would ensue.

The only potential injury from waiting until the arbitrators have made their award is delay and the out-of-pocket costs of paying the arbitrators and legal counsel. Long ago the Supreme Court held that the delay and expense of adjudication are not "irreparable injury"-if they were, every discovery order would cause irreparable injury. See, e.g., Petroleum Exploration, Inc. v. Public Service Commission, 304 U.S. 209, 222 (1938); Renegotiation Board v. Bannercraft Clothing Co., 415 U.S. 1, 24 (1974); FTC v. Standard Oil Co., 449 U.S. 232, 244 (1980). We held in PaineWebber Inc. v. Farnam, 843 F.2d 1050 (7th Cir. 1988), and Graphic Communications Union v. Chicago Tribune Co., 779 F.2d 13 (7th Cir. 1985), that the sort of argument Trustmark advances in its effort to establish "irreparable injury" is frivolous.

We could stop here, but the district court's decision leaves a cloud over this arbitration and the reputation of arbitrator Gurevitz, a reputation that Trustmark seems determined to tarnish. We therefore add that the district court erred on the merits in addition to ...

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